In this study, we employ in vitro models to study the factors involved in the differentiation of pancreatic precursor cells into hormone-producing cells of the islets of Langerhans and their mechanisms of action with a goal to develop a system that could be used for cell replacement therapy for patients with diabetes mellitus. Development of the endocrine pancreas includes a series of early events wherein precursor cells migrate to form aggregates that subsequently differentiate into islets of Langerhans. We use PANC-1 cells, a human pancreatic cell line that can be induced to differentiate into hormone-producing cell aggregates, and cells derived from human cadaveric pancreata, human islet-derived precursor cells (hIPCs), to study regulation of cell migration and aggregation that precede differentiation. Most interestingly, we have found that hIPCs most likely are derived by in vitro epithelial-to-mesenchymal transition of mature beta cells and that differentiation of hIPCs represents mesenchymal-to-epithelial transition back to pancreatic hormone-expressing. We have established a novel cell culture system using hIPCs that allows for proliferation of these precursor cells for at least 30 generations. The proliferating cells can be induced to differentiate into insulin-expressing cells in vitro and when transplanted in to mice increase their content of preproinsulin mRNA at least 100,000-fold. We have begun to use these cells to study their regulation by growth/developmental factors (GDFs). One set of GDFs that we have identified are the factors that are ligands for protease-activated receptors (PARs). Activation of PARs enhances the survival of hIPCs as they are induced to differentiate into hormone-expressing islet-like cell aggregates (ICAs). We are also studying GDFs that can allow for generations of hIPCs in the absence of animal serum/proteins and role of cell-cell and cell-matrix interactions that are involved in the regulation of differentiation of the three-dimensional ICA structures.